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Uruguayan banks remain stable in the face of global vulnerability

Uruguayan banks remain stable in the face of global vulnerability

He Financial Stability Committee assessed that the situation of the financial and banking system in Uruguay is “stable” and that it is in a position to adequately cope with the possible risks that could affect the country.

The Financial Stability Committee —made up of the Ministry of Economy and Finance (MEF)he Central Bank of Uruguay (BCU) and the Bank Savings Protection Corporation—, held a meeting yesterday in which he discussed the global context and risk factors underlying current events.

“The international financial system continues to present vulnerabilities and risks”, maintained the statement after the meeting, which summarizes the main issues discussed; among them: the bankruptcy of regional banks in USA and the war between Russia and Ukraine.

Likewise, the committee considered that “although the markets reduced their expectations about the path of interest rates after the bankruptcy of the banks, there are still factors that can keep them at elevated levels for longer, which could trigger new episodes of stress in the financial markets. In this context, there is still a risk of a further deterioration in international financial conditionswith greater risk aversion on the part of investors, less favorable access to financing conditions, greater volatility and reduction of the product worldwide”.

Argentina, under the magnifying glass

Depending on the particular context of Uruguay, two trading partners prevailed at the meeting, China and Argentina. In both cases, the government closely monitors the performance of their economies due to the direct impact that a major problem could have.

Finally, the Financial Stability Committee concluded that, “having analyzed and evaluated the risk factors, their transmission channels and the results of the stress tests carried out, the domestic financial system is stable and would be able to process the effects of their eventual materialization”.

The very capabilities of the financial system, among which stand out its solvency and liquidity levelsdetermine that it is in a position to contribute to the proper risk managementthus facilitating the present and future performance of the economy,” the statement said as the reasons behind the calm.

The evaluation of the Central Bank

Prior to the meeting of the Financial Stability Committee, the BCU had carried out a series of stress test on the balance sheets of the country’s banks, through the Superintendence of Financial Services (SSF)to determine the status of each one.

In this sense, the result of the general banking system was that it remains stable against a crisis scenariowith solid levels of capital and liquidity, and levels of credits and deposits greater than the period of the pre-pandemic of Covid-19.

According to the BCU, “the banking system is able to withstand macroeconomic changes in an adverse scenario and in a strongly adverse scenario”, in both cases “maintaining capital levels in accordance with current regulations”.

The IMF, along the same lines as local organizations

In March, as the United States was facing the bankruptcy of two regional banks—among them, the Silicon Valley Bank (SVB)-, he International Monetary Fund (IMF) published its periodic assessment of the country.

In it, and among other points discussed, the agency’s analysts highlighted that, in the midst of the international turbulence caused by the bank collapse, the Uruguayan financial sector maintained “a solid position”, since the banks have weathered the pandemic well from Covid-19.

Regarding the state banks, considered that “they have large capital and liquidity reserves.” “Banks’ liquidity reserves are more than sufficient to withstand strong funding pressures while contagion risks appear to be limited,” the statement said.

as for some private banks, the IMF technical team pointed out that “solvency risks” should be “addressed through corresponding capital supplements and restrictions on the distribution of dividends,” they ask.

Source: Ambito

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